Clean coal may not mean cheap fuel source

By WALT WILLIAMS, Chronicle Staff Writer

Accusations of gouging aside, the pinch drivers feel at the gas pumps has everything to do with the price of a barrel of oil.

One of the benefits Gov. Brian Schweitzer touts in his administration's proposal to convert Montana coal to synthetic fuel is its cost. Synfuel can be made for as little as $35 a barrel, according to the governor's office. The price of a barrel of oil now hovers above $60.

But the claim of $35 per barrel of fuel may be too good to be true.

The figure is based on talks with the South African company Sasol and Rentech Inc., a Denver-based gas-to-liquids technology company, according Evan Barrett, the governor's chief business officer. He called it only a "ballpark" estimate.

Yet Schweitzer envisions using a cleaner process than South Africa -- the largest manufacturer of synfuels -- with Montana's plant burying the millions of tons of carbon dioxide it would produce into the ground so the gas wouldn't contribute to global warming.

The U.S. Department of Energy reports that carbon dioxide sequestration now costs between $100 to $300 a ton.

A plant making 150,000 barrels of fuel a day may release as much as 30 million tons of carbon dioxide into the atmosphere every year, so sequestration would add hundreds of millions of dollars, if not billions, to the plant's annual operating costs.

Still, the price of sequestration may not be as big a hurdle as it first appears, according to Stephen Pacala of the Carbon Mitigation Initiative.

Seven barrels of oil hold a ton of carbon, so assuming a sequestration cost of $100 per ton, that comes out to less than $15 a barrel, Pacala said.

Add that $15 to the $35-per-barrel price of synfuel to pay for sequestration and it is still less than the current price for a barrel of oil, he said.

And the technology to bury carbon may get cheaper in the future. The DOE has a goal to drop sequestration costs to $10 per ton by 2015.

Sequestration also could be turned into a moneymaker rather than a money loser.

The Great Plains Synfuels Plant of Buelah, ND, has been pumping nearly two million tons of carbon dioxide a year into an oil field at Weyburn, Canada, since 2000, allowing the oil field's owner to extract more oil from the ground.

The resulting contract with the oil company not only allows the plant's owners to bury the carbon dioxide, it helps them generate a $1 million to $1.5 million profit every month, according to Partners for Affordable Energy, an industry group.

BUILDING A PLANT

Another hurdle for overcoming costs may be infrastructure.

The state would first have to build up the railroads and other services needed to support the industry, and that will probably increase overall production cost, a Northern Plains Resource Council memo concluded.

The governor's office says both infrastructure and labor are included in the $35-per-barrel price.

A plant producing 150,000 barrels per day would cost roughly $6 billion to build, Barrett said. But he noted that helping offset production costs are tax breaks in an energy bill recently passed by Congress, including a tax credit of 50 cents per gallon of synfuel used on highways and railroads.

Sasol is no stranger to government assistance. Until five years ago, the South African government subsidized the company every time oil prices dropped below a competitive level, helping it stay on its feet after international embargoes on the country were lifted, according to the DOE.

But Barrett said no company would finance the project if it's economically unfeasible. And while he welcomes questions about it, he believes the Northern Plains Resource Council is working with too many assumptions.

"Claiming it does not work economically ahead of time is a waste of time," he said.

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